M-PESA: a case for the unbanked and underbanked in Africa

Safaricom's M-Pesa has been a well known success story throughout Sub-Saharan Africa, which is an innovative money transfer feature offered by the Kenya's largest mobile network provider. This is an exemplary case, as it is a story about an innovative financial product providing essential financial services to customer segments in the country with litter or no access to banking services through the mobile phone network. Since the service launch in 2007, M-Pesa has improved financial inclusion as it facilitates seamless individual and business transactions through the SMS based mobile payments. The service allows users to transfer money to other users (and non-users), and it enables money transfer between the service and a bank account. From 2011, international money transfer through the service became possible thanks to the strategic partnership between Safaricom and Western Union. As of March 2013, M-Pesa has more than 17 million customers in Kenya (nearly 40% of total population) and it started providing savings and micro-lending products. Will such a new non-bank financial services provider be a game-changer that would make banks' traditional business model obsolete?

The service has been growing at an impressive rate and M-Pesa generated KSH 21.84 billion in revenue, 17.6% of Safaricom's total revenue, in 2013, more than SMS (KSH 10.13 billion, 8.2%) and Mobile data (KSH 8.42 billion, 6.7%) put together (see chart below).

M-PESA Revenues 2013
Source: Safaricom annual report 2013

With such a huge user base, the service has been focusing on encouraging the existing users to become more active in making transactions within the network. Safaricom has increasingly integrated M-Pesa with their mobile products and services such as allowing users to buy data bundles via M-Pesa, and it also allows users to pay bills and make purchases. As of 2013, the service has 65,547 outlets, 1,482 paybil partners. M-Pesa also made an effort to enable those corporations with operations largely driven by distributors to help perform cash-less distribution and increased efficiency around money collection and payment by distributors. The company has now 541 bulk payment partners.

Consequently, more cash is staying in the system. Safaricom's half year 2012-2013 financial results indicated that about 1% of the total amount of money deposited to M-Pesa system in one month (KSH 69 billion, an amount equivalent to 27% of Kenya GDP) ends up not being withdrawn (p.11). In partnership with Commercial Bank of Africa, Safaraicom recently addressed this issue and started providing a new service called M-Shwari, a new service that allows users to save money, earn interest and access to micro-loans using through the mobile network with no application forms, no minimum balance, no charges for moving money between from users' M-Pesa account to M-Shwari account and vice versa. This is essentially a banking service and it has now 1.2 million customers.

Although it is too early to tell if this new service can challenge the banks' traditional role as a financial intermediary in a meaningful way, one thing is certain: banks need to change the way they think about their customers as a new technology have apparently created new opportunities to serve customers previously seen as 'the unbankable'.